Knowledge that Transforms

Floating, Fixed, or Super-Fixed? Dollarization Joins the Menu of Exchange-Rate Options by Blake LeBaron and Rachel McCulloch. Published in volume 90, issue 2, pages 32-37 of American Economic Review, May 2000

Understanding Black-White Wage Differentials, 1960-1990 Author(s): James J. Heckman, Thomas M. Lyons, Petra E. Todd Source: The American Economic Review, Vol. 90, No. 2, Papers and Proceedings of the One Hundred Twelfth Annual Meeting of the American Economic Association, (May, 2000), pp. 344 -349 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/117248 Accessed: 16/08/2008 00:56

Generational Accounts for the United States: An Update by Jagadeesh Gokhale, Benjamin Page, Joan Potter and John Sturrock. Published in volume 90, issue 2, pages 293-296 of American Economic Review, May 2000

Evaluating a Simple Method for Estimating Black-White Gaps in Median Wages by William Johnson, Yuichi Kitamura and Derek Neal. Published in volume 90, issue 2, pages 339-343 of American Economic Review, May 2000

We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets—i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a “bank lending channel” of monetary transmission, though they do not allow us to make precise statements about its quantitative importance.

This paper tests for the presence of habit formation using household data. A simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time. When the condition is estimated with food consumption data from the Panel Study on Income Dynamics (PSID), the results yield no evidence of habit formation at the annual frequency. This finding is robust to a number of changes in the specification. It also holds for several proxies for nondurables and services consumption created by combining PSID variables with weights estimated from Consumer Expenditure Survey data.

In a recent issue of this journal, Stephen Morris and Hyun Song Shin (1998a) prove the uniqueness of an equilibrium in a model of self-fulfilling currency attacks, when speculators face uncertainty in their signals about macroeconomic fundamentals. In Theorem 2 of their paper, Morris and Shin characterize the equilibrium as uncertainty approaches zero. They claim that the threshold of the fundamental state, up to which a currency attack will occur with probability one, is independent of the critical mass of capital needed for an attack to be successful. Hence, direct capital controls are less effective when speculators have fairly precise information about fundamentals. Yet, their Theorem 2 holds only for a special case. This Comment gives the correct generalization and proves that for small uncertainty currency crises depend on the critical mass of capital needed for success. Thus, direct capital controls are effective even when fundamentals are fairly transparent to all market participants. The reduced-game structure is given by the following assumptions: Fundamentals of the economy are characterized by some parameter u unknown to agents. There is a continuum of agents receiving independently and identically distributed (i.i.d.) signals x about the fundamentals. Each agent must decide whether or not to attack the currency, which is associated with transaction costs t . 0. If a proportion a(u ) of all traders attacks the currency, the attack is successful and each attacking agent obtains a reward R(u ) 5 e* 2 f(u ). a and R are continuous; there is a state u with a(u ) 5 0 for all u # u; a is strictly increasing above u; and a(u ) , 1 for all u. R is strictly decreasing and there is a state u# . u with R(u# ) 5 t. u is uniformly distributed over an interval, say [0, 1]. Given u, signals have a uniform distribution in [u 2 «, u 1 «]. Critical levels u and u# must be at least 2« away from the margins of the interval [0, 1]. In Section II of their paper, Morris and Shin show that a unique equilibrium switching point x* and a threshold u* exist, such that an agent attacks [does not attack] the currency if her signal x is smaller [larger] than x*, and that a successful speculative attack occurs with probability one [zero] if state u is below [above] u*. In Section III, Theorem 2 states that “In the limit as « tends to zero, u* is given by the unique solution to the equation f(u*) 5 e* 2 2t” (p. 594). As stated, this theorem holds only for the special case where a(u*) 5 1⁄2. It should therefore be generalized as follows.

Although increased wage inequality among men during the past three decades has received more attention, the growth in women's wages has been equally remarkable. In fact, by one measure of inequality, the ninth-decile/median ratio, the proportional growth in inequality has moved in exact proportion with the female/male wage ratio. It is suggested that both result from expansion in the value of brains relative to brawn. There is no way of knowing the full story of growth in women's relative wages, and it is important not to dismiss the import of changing career patterns. As is evident in the panel data, increasing labor market participation must be important. So, too, are the implications that follow the movement of women from the home to the job.

For years, college-educated women were limited mainly to lower-paying, female-dominated professions such as teaching and nursing. Over the past several decades, however, there has been a remarkable increase in the percentage of college-educated women in higher-paying, “traditionally male” professional occupations. In 1967, the fraction of college-educated women working in these occupations was less than 20 percent. By 1997, this number had increased to almost 40 percent. This increase is particularly striking when compared to the slightly declining trend among college-educated men. What can explain this increase in female professionals? There are a number of possible explanations. One explanation is a demand shift favoring women over men in these highly skilled occupations. While the notion of a “gender-specific” demand shift is compelling in the case of high-school-graduate men and women, who work in very different industries and occupations, the story is much less convincing for the college-educated group. Collegeeducated men and women work in more similar occupations and are presumably closer substitutes for each other. To the extent that they are different, the available evidence suggests that this may have worked to the disadvantage of women (see Francine Blau and Lawrence Kahn, 1997). Another explanation, and the one we focus on in this paper, is that college-educated women have responded to the rise in overall skill demand, a phenomenon which has characterized the U.S. labor market during the 1980’s and perhaps even as early as the 1970’s. An important margin of response for these women may have been labor-market participation. In 1970, less than 60 percent of college-educated women were working. The economy-wide rise in skill demand may have attracted educated women not only from other occupations, but from nonparticipation as well. Since virtually all college educated men work, labor-market participation is less likely to be a factor for men. While we postulate that the overall increase in skill demand played an important role, we are also aware that this is not the only explanation. Within these high-wage professional occupations, women’s wages rose relative to male wages even as women increased their share. This suggests to us that declining discrimination (which both made it easier for women to enter these occupations and resulted in wage convergence vis a vis the male workers) or unobserved skill upgrading also may have played a role. In addition, the spread of more effective birthcontrol devices, Roe v. Wade, and no-fault divorce laws, just to name a few of the factors which changed marriage and fertility patterns of women, also most likely contributed to women’s willingness and ability to invest in “career jobs” (see Claudia Goldin and Lawrence Katz, 2000).